Definition of a Land Contract

Features

• A land contract enables the sale of a piece of property between a buyer and seller without the need for a traditional mortgage lender. The seller retains the legal title to the property, but the buyer receives equitable title. This gives the buyer the right to occupy the home or property, and pay the property taxes.
  
  

Benefits to Buyer

• There are several benefits to the buyer of a property on a land contract. There are no qualifying requirements. A seller can choose to give a land contract to whomever he wants. A down payment could be negotiated and made smaller, giving the buyer more options. The length of the term, the interest rate and the payments are all negotiable. Closing costs are low and the time required to close on the property is relatively quick.
  
  

Benefits to Seller

• A land contract benefits the seller because once he advertises this as an option for buyers, he immediately increases the marketing potential of his home or property. People who already have mortgages but can afford another payment, those with poor credit but good jobs, or those who are self-employed and have trouble proving income can all now become potential buyers. Generally, the seller will receive a higher sales price if going the land contract route and won't have to deal with an appraisal. Capital gains taxes will be deferred; the investment rate of return is higher than most money market accounts and there is a monthly income guaranteed.
  
  

Laws

• Both parties involved should, if possible, seek the advice of a lawyer and have one of them make up the contract. Review your state's laws regarding land contracts. Often a real estate agent is not empowered to help with these types of contracts although they can help make the sale. Further, some states have laws that directly impact how and when a seller can foreclose, and how and when legal deed must be transferred.
  
  

Tips

• The buyer should get an appraisal. Even if he chooses to disregard in favor of making the deal, the appraisal will at least let the buyer know what they are getting; purchase title insurance and be certain the title is clear; find a holding company to hold onto the original documents. A seller should get a copy of the buyer's credit report even if he chooses to sell to someone with poor credit, at least the seller understands the buyer's history; put both buyer and seller names on the home owner's insurance; hire a disbursement company to deal with contract collection.